Trump Critic Buffett Just Got Richer…Thanks to Trump
The universe is behaving strangely. First the Chicago Cubs won the World Series and then Donald Trump won the presidency. The karmic wheel also took an unexpected turn for billionaire Warren Buffett.
Buffett’s preferred presidential candidate Hillary Clinton lost, a shock for the Oracle of Omaha who during the campaign made no secret of his utter disdain for Trump.
But Buffett’s political disappointment turned into a financial windfall for his personal portfolio as well as for Berkshire Hathaway (NYSE: BRK.A). Follow our advice and you can make a killing, too.
Buffett is a committed Democrat and fervently supported Clinton. Heck, on Election Day in his hometown of Omaha, Buffett even drove voters to the polls on a trolley he hired.
The fates delivered two big surprises: Trump won and the markets rallied, with financial services stocks among the biggest gainers. Since November 9, the benchmark Financial Select Sector SPDR ETF (NYSE: XLF) has soared 12% and it’s up 14.7% year to date, compared to 2.6% and 6.2% respectively for the S&P 500.
Buffett’s portfolio and his holding company Berkshire Hathaway are both heavily weighted toward the financial sector. Buffett’s favorite bank stock is Wells Fargo (NYSE: WFC), which has been leading the financial pack.
Berkshire owns nearly 470 million shares of Wells Fargo, a 9.5% stake. Buffett personally owns two million shares of Wells Fargo. During the recent Wells Fargo scandal, neither Buffett nor Berkshire sold a single WFC share. As we’ll make clear, Wells Fargo also belongs in your portfolio.
Another big fan of Wells Fargo is Personal Finance chief investment strategist Jim Pearce. In addition to WFC, Jim recommends three other bank stocks poised for big gains. We’ll get to Jim’s views in a minute.
But first, let’s get one thing straight: We never take political sides at Investing Daily. The most successful investors avoid wishful thinking and take the world as they find it. And right now, clear-eyed analysis tells us that the financial services sector is one of the best places for your money.
Bank stocks are soaring in large part on expectations that Trump will adopt a laissez-faire stance toward the financial sector.
In particular, Trump has plans to kill the Dodd-Frank Act, the landmark legislation passed in 2010 after the worst financial crisis since the Great Depression.
Dodd-Frank is designed to prevent the reckless behavior that sent the economy down the tubes, but bankers generally view its rules on capitalization and disclosure as onerous. With Republicans controlling both chambers of Congress and the White House, Dodd-Frank is toast.
Banks enjoy several other tailwinds. The Federal Reserve is ready to tighten, oil prices are rising, and economic growth is strengthening.
The stage is set for Wells Fargo to prosper. Buffett has been a big booster of the bank and in the past expressed admiration for the bank’s management, especially for the prudent manner in which WFC avoided the malfeasance that triggered the global financial crash of 2008.
But Wells Fargo’s reputation got sullied, when the news broke in September that it was being fined $185 million to settle charges that thousands of employees secretly opened unauthorized accounts for customers.
At first, WFC’s stock took a big hit. But Tim Sloan, who grabbed the reins in October as Wells Fargo’s new CEO, is winning back the public’s faith by implementing new ethical guidelines.
Since Sloan took over from the disgraced John Stumpf on October 12, WFC shares have jumped 17.1%. Since November 9, the stock has soared nearly 18%.
To be sure, Wells Fargo’s misdeeds are heinous and the bank deserved to be pilloried in the public stockades. However, the fine leveled by regulators is a mere slap on the wrist for Wells Fargo, which boasts a market cap of more than $267 billion. And let’s face it: bank scandals are nothing new and memories are short.
With the reform-minded Sloan at the helm, Wells Fargo remains an efficient low-cost operator in what’s increasingly a commodity industry. The bank also is a leader in mortgage lending, which is picking up along with the economy and a thriving housing market.
And yet, WFC shares now trade at a bargain. The stock’s trailing 12-month price-to-earnings ratio (P/E) is only 13.21, compared to the average trailing P/E of 15.8 for its peers. Grab this best-of-breed bank stock now.
Jim Pearce’s Take: Don’t pass up these banking gems…
As Jim Pearce, head honcho at our flagship publication Personal Finance, recently wrote about Wells Fargo:
“Although I strongly disapprove of the way its management team handled the sleazy account-opening activity, in this case I feel the stock now represents a bargain that shouldn’t be passed up.”
Jim also highlights three additional bank stocks that all score an 8 or better on his IDEAL stock-picking system: Prudential Financial (NYSE: PRU), Morgan Stanley (NYSE: MS) and SunTrust Banks (NYSE: STI).
As Jim writes about these three banking stalwarts:
“All stand to benefit from higher interest rates, which should allow these companies to improve profits on their huge portfolios by charging a lot more in interest for loans than they pay on deposits. Ironically, if a rate hike sparks a correction, these three stocks could be among the biggest beneficiaries, even though their share prices may drop in the near term.”
All four of our banking picks are well-suited for your retirement portfolio.
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Editor’s Note: Our investment strategists are on the job around the clock to help you make money. Got a question, idea or comment for them? Send me an email: email@example.com. Your feedback allows us to better serve your investment needs. — John Persinos